It sounds like Munchery’s early investors are screwed

Munchery, an on-demand food delivery startup that has already raised more than $120 million, is reportedly looking to raise an additional $15 million in funding that would force a recapitalization of the company, Bloomberg reports. Munchery reportedly has raised more than $5 million in this new financing.

As part of the recapitalization, Munchery issued shares to new investors in the form of a convertible note, which can later be exchanged for equity in the result of another equity raise or liquidity event. One person told Bloomberg that the valuation on the note is capped at $80 million.

Munchery’s last round of funding was an $85 million Series C, which valued the company at around $300 million. So, according to Bloomberg’s evaluation, Munchery wouldn’t be valued at more than about a quarter of what it once was.

This new deal essentially wipes out the stakes of pre-existing investors and early Munchery employees. Recapitalizations generally happen when the company can’t find outside investors to drive the valuation further up, so it resets the cap table and starts from scratch.

Update*: According to Munchery, all of its existing investors are able to invest in this latest round of financing, “and most investors from our earlier financing rounds are participating in this financing round,” a Munchery spokesperson told TechCrunch via email. “Thus, the majority of our early investors continue to have ownership in Munchery.”

Munchery also refuted Bloomberg’s source’s claim that there would be a cap on the valuation, saying, “there is no cap on the valuation nor the convertible note, which is based on the principal amount raised.” This spokesperson went on to talk about how Munchery’s revenue grew by about 60% year-over-year last year, and that the company expects to see similar growth this year.

But Munchery has had a rough last 12 months, between scathing reports of the company wasting an average of 16 percent of the food it makes, laying off 30 employees and burning through most of the money it’s raised.